The purpose of aid

Teresa Hayter has
responded to our recent special feature The
Aid Debate (see NI 425)  which was provoked in part by Dambisa Moyos controversial book Dead Aid.

In her contribution to the on-going
discussion, Dr Hayter takes issue with the very idea that the purpose of aid is
to alleviate poverty. She writes:

The notion that official
foreign aid is in reality intended to alleviate poverty in the Third World dies hard.

The actual function of aid
from western governments and their agencies, the World Bank and the IMF, is to
subsidize the operations of the private corporations and banks of the West.
This is not conspiracy theory. It is a conclusion painfully and slowly, reached
after many years of research.

My first proper job, from
1963 to 1968, was at the British Overseas Development Institute, a lobby for
more and better aid. The ODI was funded by Unilever, Barclays Bank and the
like. We were not allowed to criticize foreign private investment in the
developing countries  which surprised me a little.

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But it was even more
surprising that these corporations and banks wanted more government foreign
aid. It gradually became clearer to me why this was so. They wanted to be able
to continue their profitable operations in the Third World. Aid was, and is, used by governments and big multilateral aid
agencies to ensure that the governments that receive it adopt policies that
favour not just capitalism in general, but the interests of their private
corporations and banks in particular.

From 1944 onwards, when the
World Bank and the IMF were set up, these institutions have dominated aid
policies. They are controlled by the US and other major western governments, through weighted
voting and the fact that the World Bank raises most of its money on Wall
Street. In turn, the World Bank and the IMF have a powerful influence on these governments
aid policies and, in particular, on which Third World governments they do and do not support. It is hard to determine
whether lending decisions result from US pressures or from the overwhelmingly
right-wing proclivities of these aid agencies staff.

From the beginning, they
intervened heavily in the policies of the governments receiving aid. The IMF
sees its role as attaching conditions to its lending, designed to
secure financial stability through orthodox, monetarist policy 
especially by cutting public spending.

The World Bank was, in
theory, supposed to promote long-term development through funding projects.
But, although at first secretively  officials, when they tried to suppress my
research, told me they favoured secret diplomacy  the Bank too tried to
determine the general economic policies
of the governments it lent to, and did so in a classic, monetarist direction.
In other words it attached, and attaches, conditions not merely to the projects
it funds, but on government economic policies in general. This policy became
public in the 1980s, when it became known as structural adjustment lending.

The demands the Bank makes
are no less restrictionist and orthodox than those of the IMF, and sometimes
more so. Both institutions demand not  as I had expected when I was sent to
study the Bank in Latin America in 1967  more spending on health and
education for example, but cuts in such
spending. At first this was to secure stability and then, in the 1980s, to
extract servicing on foreign debt. For similar purposes these institutions
demand privatization, which has meant selling off public assets  in practice,
cheaply, to foreigners.

They demand the removal of
controls on imports and on the export of capital, and devaluation. They demand,
supposedly in the interests of capitalist efficiency, that projects be put
out to tender in ways which favour foreign rather than local contractors. The
Bank requires full cost recovery on any projects it finances in, say, water
or housing. In other words, the poor have to pay. It demands cuts in wages and
jobs in the public sector. It opposes land reform, at least land reform which
involves transfers from the rich to the poor. It prefers the abolition of
collectives or co-operatives. And so on.

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All of this has meant that
the aid agencies support only right-wing, pro-Western and often repressive
governments, some of them the product of US-supported military coups; the
Pinochet government in Chile was one of their most favoured. The converse, of
course, is that they deny aid to elected governments which attempt to introduce
reforms, such as redistribution to the poor and of course nationalization of
foreign assets, let alone socialism. In 1985 I recorded a list of some of the
governments which had had aid cut during periods when they were pursuing
left-wing reforms: Chile, Vietnam, Nicaragua, Grenada, Algeria, Peru, Brazil, Egypt, Jamaica. Virtually no right-wing government has been penalized
by the withholding of aid.

The threat to cut aid, or the
promise of more for governments that do what they are told, sometimes
works.

The decision by the South
African ANC to apply for loans from the World Bank (which are classed as aid)
explains to a great extent its abandonment of some promised reforms, including
redistribution to the poor and land reform, and contributed to the creation of
a, now, notoriously corrupt governing élite. Other factors may be more
important, of course.

Third World élites know which side their bread is buttered on.
For example the fact that Latin American governments did not default on their
foreign debts when interest rates rocketed at the beginning of the 1980s, and
cut domestic spending instead, is incomprehensible unless one accepts that
there was not just a lenders cartel, but collusion from high up Latin American
politicians and officials who did not want to lose their access to Wall Street
jobs, and other privileges derived from membership of the international
financial elite. The financial effects of losing aid would have been small
compared to the gains from default. And if the threats and promises of aid fail
to have their effect, the West of course may resort to other means, including
military intervention, directly or by proxy. But aid is a first line of defense
against socialism and against other reforms which might undermine the ability
of the West and its corporations and banks to extract wealth from the Third World.

Some aid projects may in
themselves be useful. Others may be problematic: foreign so-called experts,
however well-meaning, often get it wrong. But, above all, the policies which
governments have to adopt to get the money are deeply damaging to the interests
of the poor. I believe, therefore, that official government aid, on balance, does
more harm than good to the poor of the Third World.

Teresa Hayter is an
Oxford-based writer and activist. Her books include: Aid as Imperialism, Penguin 1971; Aid: Rhetoric and Reality, Pluto 1985; The Creation of World Poverty, Pluto 1981.